Tuesday, June 30, 2009

In a recent letter to the Boston Herald, BHI Koch Summer Fellow Andrew Dabrowski thinks more rules don't make for better rules.

The Herald’s criticism of the new financial regulation package simply fails to go far enough (“Regulation history,” June 21). Suffice to say, there are many, many new rules, and very few of them will do anything substantial.

Does anyone really believe that the same tired government agencies will be able to manage ever more responsibility? Far from helping the American consumer, these new regulations will further restrict banking activity. Putting the brakes on the financial industry should be the last thing the economy needs. Obama’s regulation will fail to modernize the financial regulatory system, leaving it open to future disaster.

Ideally, the new rules should have centralized regulation by eliminating the legions of individual regulators. I don’t necessarily argue for a single agency, but rather for fewer, more effective institutions.

Last week the Wall Street Journal published a letter to the editor from BHI Koch Summer Fellow Alex Weckenman. Here's the entire letter:

Messrs. Rivkin and Casey argue that a public healthcare plan violates the privacy rights established in Roe v. Wade. But where is the violation of privacy?

Roe v. Wade.prevents the government from limiting access to abortion on the grounds that the decision to abort is a private matter best left to the woman. That same logic may prevent government from limiting access to the type of treatment that a patient deems most suitable. But the existence of a public plan does not preclude access to private insurance. Those that disagree with the government plan are free to pursue whatever private alternative they choose.

Government restrictions on access to private care are the real privacy rights violations. For example, the ban on interstate purchases of health insurance, like a ban on abortion, limits an individual's autonomy on a deeply personal issue.

Thursday, June 25, 2009

Green Jobs a Cost, Not Benefit, to the National EconomyAcademic Study Finds Critical Economic Flaws and Assumptions in Previous Reports

BOSTON, MA – Recent studies forecasting the potential economic benefits of government green job programs are critically flawed and erroneously promote these jobs as a benefit, according to a report released today by The Beacon Hill Institute (BHI) at Suffolk University.

The economic analysis reviewed the primary claims of three of the most influential green jobs studies and found serious economic flaws in each.

“Contrary to the claims made in these studies, we found that the green job initiatives reviewed in each actually causes greater harm than good to the American economy and will cause growth to slow,” reported Paul Bachman, Director of Research at the Beacon Hill Institute, one of the report’s authors.

* The Center for American Progress, “Green Recovery: A Program to Create Good Jobs and Start Building a Low-Carbon Economy.”

* The U.S. Conference of Mayors, “U.S. Metro Economics: Current and Potential Green Jobs in the U.S. Economy” prepared by Global Insight.

The authors of the BHI critique identified a fundamental error in each of these studies, specifically "counting the creation of a green job as a benefit and rationale for its proposed program in and of itself.”

The BHI study also stresses that “Jobs -- green or otherwise -- are not benefits but are instead costs. If the green job is a net benefit it has to be because the value the job produces for consumers is greater than the cost of performing the job. This argument is never made in any of these three green jobs studies.”

The executive director of the Beacon Hill Institute and co-author, David G. Tuerck, went further, noting that “these studies are based on arbitrary assumptions and use faulty methodologies to create an unreliable forecast for the future of green jobs.

“It appears these numbers are based more on wishful thinking than the appropriate economic models, and that must be taken into consideration when the government is trying to turn the economy around based on political studies and the wrong numbers,” Tuerck said.

According to BHI, the results of the study also show estimates on how a state-based cap and trade policy will negatively impact both job growth and wages. One specific critique involves job creation in the state of Indiana, where previous reports did not take increased energy costs from a “cap and trade” system into consideration when looking at job creation. In that case, BHI developed a computable general equilibrium (CGE) model and found that contrary to previous studies, Indiana would lose more than 18,000 jobs in 2009, up to nearly 29,000 job losses in 2011, and that real disposable income would be cut by nearly $1 billion in 2009 and close to $1.5 billion in 2011.

The authors concluded by noting that further economic analysis is needed before governments move forward on green job initiatives. “All three green jobs studies we reviewed are riddled with economic errors, incorrect methods, and dubious assumptions. Economic policy should not be based on such faulty analysis. Serious economic studies of costs and benefits are desperately needed before the adoption of any green jobs proposal.”

... Congressional Budget Office did an analysis of what has come to be known as the Waxman-Markey bill. According to the CBO, the climate legislation would cost the average household only $175 a year by 2020. Edward Markey, Mr. Waxman's co-author, instantly set to crowing that the cost of upending the entire energy economy would be no more than a postage stamp a day for the average household. Amazing. A closer look at the CBO analysis finds that it contains so many caveats as to render it useless.

For starters, the CBO estimate is a one-year snapshot of taxes that will extend to infinity. Under a cap-and-trade system, government sets a cap on the total amount of carbon that can be emitted nationally; companies then buy or sell permits to emit CO2. The cap gets cranked down over time to reduce total carbon emissions.

To get support for his bill, Mr. Waxman was forced to water down the cap in early years to please rural Democrats, and then severely ratchet it up in later years to please liberal Democrats. The CBO's analysis looks solely at the year 2020, before most of the tough restrictions kick in. As the cap is tightened and companies are stripped of initial opportunities to "offset" their emissions, the price of permits will skyrocket beyond the CBO estimate of $28 per ton of carbon. The corporate costs of buying these expensive permits will be passed to consumers.

The biggest doozy in the CBO analysis was its extraordinary decision to look only at the day-to-day costs of operating a trading program, rather than the wider consequences energy restriction would have on the economy. The CBO acknowledges this in a footnote: "The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap."

The hit to GDP is the real threat in this bill. The whole point of cap and trade is to hike the price of electricity and gas so that Americans will use less. These higher prices will show up not just in electricity bills or at the gas station but in every manufactured good, from food to cars. Consumers will cut back on spending, which in turn will cut back on production, which results in fewer jobs created or higher unemployment. Some companies will instead move their operations overseas, with the same result.

When the Heritage Foundation did its analysis of Waxman-Markey, it broadly compared the economy with and without the carbon tax. Under this more comprehensive scenario, it found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Note also that the CBO analysis is an average for the country as a whole. It doesn't take into account the fact that certain regions and populations will be more severely hit than others -- manufacturing states more than service states; coal producing states more than states that rely on hydro or natural gas. Low-income Americans, who devote more of their disposable income to energy, have more to lose than high-income families.

Wednesday, June 24, 2009

Several things conspired to hurt Altadis' sales, McKenzie said, including the recession and the growth of indoor smoking bans. The bans have especially hurt sales in cold-weather states, where it's impractical to smoke a cigar outdoors in the winter, he said.

However, the company attributed much of its trouble to the State Children's Health Insurance Program, or SCHIP, a federal program that provides health insurance to low-income children. It is funded, in part, by a new federal tax on cigars and cigarettes. McKenzie couldn't say how much sales of Hav-A-Tampa cigars had fallen off, but the numbers have dropped significantly, he said.

Previously, federal excise taxes on cigars were limited to no more than a nickel, said Norman Sharp, president of the Cigar Association of America trade group. The tax increase, which took effect April 1, raises the maximum tax on cigars to about 40 cents, Sharp said.

Before the tax increase was passed, the cigar industry warned that consumption of cigars could fall as much as 30 percent in the year after its passage. It's not clear yet how big of an impact the law is having on sales, Sharp said.

Harrison said she understands the company's predicament and that Altadis has tried to treat its employees fairly, including guaranteeing employees two months of pay. Like her employer, she put part of the blame on the SCHIP tax hike.

Wednesday, June 10, 2009

We have said from the beginning that the recession would end quickly and a V-shaped recovery would follow. Now, a combination of loose monetary policy and reforms to overly strict (and inappropriate) mark-to-market accounting rules have ended the financial panic.

Apple will come to North Carolina, investing $1 billion in a computer data center over nine years.

Gov. Beverly Perdue announced the expansion this afternoon after signing legislation that will cut the California company’s tax bill in North Carolina by about $46 million over a decade. Legislators moved rapidly last month to approve the measure, which changes the way corporate income taxes are calculated for a capital-intensive business like Apple. It is expected to be the only company that will benefit.

“North Carolina continues to be a prime location for growing and expanding global technology companies,” Perdue wrote in a statement. “We welcome Apple to North Carolina and look forward to working with the company as it begins providing a significant economic boost to local communities and the state.”

The data center is expected to have at least 50 full-time employees, although another 250 contractors could be employed to manage security, landscaping and heating and air conditioning systems. Including construction jobs, the presence of the facility could put a total of 3,000 people to work, according to Department of Commerce estimates.

The best tax system is comprised of a low rate with few or no exemptions.

Tuesday, June 2, 2009

The central fact of the cap-and-trade proposal is that it will increase the price of energy. If energy prices don't go up, the goal of getting energy producers, manufacturers, and consumers to shift away from carbon generating fuels (coal, oil, and natural gas) toward low-carbon sources of energy (nuclear, solar, wind, conservation) will not be achieved.

Whatever else they are, the folks in Congress are not stupid when comes to protecting their electoral viability. They are painfully aware of the fact that, while Americans express support for regulations to reduce greenhouse gases, 77 percent in a recent ABC News/Washington Post poll declared themselves either "very concerned" or "concerned" that "federal regulation of greenhouse gases could substantially raise the price of things you have to pay for."

So in an attempt to ward off voter displeasure over higher energy prices brought about by Congressionally-mandated carbon rationing, the denizens on Capitol Hill have tacked on a number of Rube Goldbergesque policy obfuscations designed the mask the price increases. These include subsidies and tax breaks for retrofitting buildings to use less energy, setting energy conservation appliance standards, subsidies for higher mileage automobiles, and imposing a renewable fuel standard on utility companies, among many other things.

The chief technique that Congress is using to hide the mandated price increase in electricity and natural gas from voters is giving away free emissions permits to local electricity and gas distribution companies. In the ACES bill, some 30 percent of emissions permits are allocated free to local distribution companies who are supposed to sell the permits and then pass along the money to consumers as a lump sum rebate to offset their higher utility bills. Why a lump sum?

As Harvard University environmental economist Robert Stavins explains in his article on "The Wonderful Politics of Cap-and-Trade," the hope is that such rebates will compensate "consumers for increases in electricity prices, but without reducing incentives for energy conservation." Even if they are getting a rebate, higher monthly electric bills will still likely annoy voters. But let's assume that this scheme actually works as intended and blunts household displeasure about paying more for electricity and natural gas.

There's one big problem: The proposal merely shifts the price paid by consumers for energy from local utilities to other products and services. For example, Resources for the Future economists Rich Sweeney and Dallas Burtraw calculate that auctioning all of the carbon emissions permits would result in a price of $20.91 per metric ton. However, allocating 30 percent of the carbon dioxide emissions permits free to local utilities as proposed under the ACES bill would mean lower electricity prices, and lower prices would mean more consumption. The result is that there would 24 percent fewer emissions reductions in the electricity sector than would have been the case had all permits been auctioned.

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Disclaimer:

The opinions expressed on this blog by individual writers do not necessary represent the views of the Beacon Hill Institute but they do intend to foster new thinking on the major public policy issues facing the Commonwealth of Massachusetts.